The U.S. Court of Appeals for the Eleventh Circuit, applying Florida law, has held that a securities exclusion in a private company directors and officers insurance policy broadly barred coverage for all claims in an underlying lawsuit brought by former shareholders of an insured company arising out of the sale of their shares.  Colorado Boxed Beef Co., Inc. v. Evanston Ins. Co., No. 19-10326, 2019 WL 2479321 (11th Cir. June 13, 2019).

In the underlying action, former shareholders of the insured company asserted a number of claims based on the company’s sale of their shares pursuant to a stock purchase agreement.  The shareholders’ complaint included allegations of self-dealing/corporate theft, but those allegations were not asserted in support of standalone claims.  The company’s D&O insurer denied coverage for the underlying action on the grounds that the policy’s securities exclusion applied.  The exclusion barred coverage for claims “[b]ased on, arising out of or in any way involving (i) the actual, alleged or attempted purchase or sale, or offer or solicitation of an offer to purchase or sell, any debt or equity securities; or (ii) the actual or alleged violation of any federal, state, . . . or common . . . law relating to . . . debt or equity securities.”  The insured company filed a declaratory judgment action, arguing that the allegations of self-dealing or corporate theft could stand alone as claims for covered wrongful acts under the policy.  The district court disagreed, finding that these allegations are “part and parcel” of the claims barred by the securities exclusion.

The Eleventh Circuit affirmed on appeal, agreeing with the district court that any references to self-dealing in the underlying complaint “aris[e] out of” the sale of securities, and therefore the securities exclusion barred coverage for the underlying action as a whole.